Watson, who won the green jacket in 2012, shot a 4-under-par 68 that matched the best score Friday. He goes to the third round with a 7-under 137 total.
Watson ripped off five consecutive birdies beginning at No. 12, just the fifth player in Augusta National history to make consecutive birdies at those holes.
Australia’s John Senden was the closest challenger, also shooting 68 for 140 overall.
The group at 141 included defending champion Adam Scott, who shot 72. He was joined by Denmark’s Thomas Bjorn (68), Sweden’s Jonas Blixt (71) and 20-year-old American Jordan Spieth (70).
At the other end of the age scale, 54-year-old Fred Couples is five strokes back after his second consecutive 71.
